Strong equity market performance in the second quarter reflected better-than-expected economic data and increasing evidence that disinflation is gaining traction. Expectations surrounding accelerating innovations in artificial intelligence also contributed to very strong performance in the tech sector which propelled the NASDAQ to a 13% gain in the second quarter and contributed to the S&P’s impressive return.
Fixed income returns were modestly negative in the 2nd quarter as resilient economic data caused the market to reconsider its expectations of a late-2023 recession that would result in rate cuts from the Federal Reserve. Federal Reserve Chairman Jerome Powell signaled that another two rate hikes are likely in 2023 as the Fed appears to remain committed to its higher-for-longer approach in order to keep inflation trending down toward the Fed’s 2% target.
International developed and emerging markets had a strong final month and finished the quarter up 3.22% and 1.04%. Slowing inflation boosted developed market equity returns as investors remain hopeful that interest rates are peaking and the need for further rate tightening is abating. Emerging market performance reflected optimism that China is likely to provide supportive measures amid mixed economic data and other economies (e.g., Brazil) are on the precipice of easing monetary policy as disinflation progresses.
While the second quarter included optimistic signs for the future, such as increasingly resilient economic data and the potential of AI, we remain cautious and think a balanced approach is appropriate for most investors. We believe the Federal Reserve is committed to curbing inflation, creating uncertainty about the path of monetary policy and the future of the economy. We are confident and optimistic about the future of the economy and market over the long-term, but unprecedented fiscal and monetary policy means no one can be certain about what the near-term future holds. We advocate for a well-diversified and balanced investment approach that keeps a portfolio well positioned for a multitude of scenarios.
|2nd Quarter 2023
|Dow Jones Industrial Average
|Bloomberg Barclays U.S. Agg Bond
|MSCI EAFE Index
|MSCI EM Index
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